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Marcus Beats on Both Lines

Entertainment and lodging company, The Marcus Corporation (MCS), reported second-quarter fiscal 2013 earnings of 17 cents per share. The result beat the Zacks Consensus Estimate of 15 cents per share as well as the year-ago earnings of 10 cents a share.

The Milwaukee-based company’s total revenue jumped 11.7% year over year to $100.6 million and surpassed the Zacks Consensus Estimate of $98.0 million. The surge in revenue was due to a strong performance from its theater business.

The Marcus Hotels & Resorts division posted 3.4% growth in revenues, thanks to a 0.8% rise in revenue per available room (RevPAR). The increase in RevPAR was driven by continued improvement in the average daily rate arising from an increase in business as well as leisure travelers.

During the reported quarter, Marcus’ box office revenues took a substantial leap of 21.7% year over year. This was due to a stronger line up of films as compared with the year-ago quarter. The top performing films during the quarter were The Twilight Saga: Breaking Dawn – Part 2, Skyfall, Wreck-It Ralph (3D), Taken 2 and Hotel Transylvania (3D).

Operating income of Marcus also grew 55.2% to $9.7 million, aided by a robust 87.8% increase in the entertainment division's operating income. However, this was partially offset by a 4.0% dip in the lodging division operating income.

Operating income in Marcus Hotels & Resorts was marred by the settlement of a litigation associated with the Platinum Hotel & Spa in Las Vegas. Excluding the settlement, operating income for Marcus Hotels was nearly 10% in the second quarter.

Liquidity

At the end of the quarter, the company had cash and cash equivalents of $17.7 million versus $12.4 million in 2012. Long-term debt was $221.4 million as compared with $106.3 million in 2012.

Share Repurchase

During the quarter, the company repurchased 1.6 million shares.

Our Take

We remain impressed with the company’s better-than-expected results in the second quarter of fiscal 2013. The upcoming holiday period also bodes well for the company. Marcus’ results will likely be boosted in the upcoming quarters as several big budget studio films are lined up for release in the fourth quarter of 2012, especially in the week between Christmas and New Year's.

Furthermore, the company expects this year’s Christmas and New Year celebrations to last longer than usual. This is because both the events have fallen on weekdays and will probably last till weekend. Concurrently, we expect the estimates to go up in the coming days.

However, the outlook for the hotel division is not that encouraging. Lately, the hotel business has been performing better. However, management believes that an increase in room supply in its vital Milwaukee market in the next year will likely hurt pricing power.

The Marcus Corporation currently carries a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating. We also have a long-term ‘Outperform’ recommendation on the stock. Marcus competes with the likes of Wyndham Worldwide Corporation (WYN) and Choice Hotels International Inc. (CHH) and more.